Is Your Performance Management Culture Outdated?

In human resources departments everywhere, leaders are rethinking the way they evaluate employee performance.
In fact, 79 percent of executives rate redesign of performance management a high priority – 8 percent more than three years ago, according to the Deloitte 2017 Global Human Trends Capital report. 
Is your performance management system outdated and in need of a redesign? Here’s a quick overview of what’s out when it comes to performance management trends, plus a few suggestions on how to improve an outdated performance management culture.

What’s Out in Performance Management?

#1 – Annual Performance Review

Discussing your employees’ performance just once a year is an outdated idea, says Dr. Josh Kuehler, Analytics Manager at human capital consulting firm, FMG Leading. “Discussing a major ‘miss’ or a celebratory action months after the event loses its strength in correction or reinforcement,” he says.
Though some companies still depend on just one performance review annually, Leigh Steere, co-founder of research company Managing People Better, LLC, says this is a poor practice for several reasons.
“Employees need feedback in real time so they can understand, in the moment, what’s working well and what needs improvement. Without regular performance feedback, employees will keep doing the same things (good and bad) because they don’t know that something needs to change.”
Steere says lack of regular performance feedback can actually demotivate employees, as they want to do their best, but can’t without regular input. Additionally, she says there’s a tendency to base annual reviews on the memorable past, instead of looking at results from the entire year.
“If an employee makes a recent mistake, it’s too easy to let that one mistake color the whole evaluation – even if, overall, the employee is stellar.”

#2 – Compliment Sandwiches

If your performance review meetings include sandwiching the not-so-good feedback between compliments, it’s time to stop. Compliment sandwiches were originally intended to make supervisors more comfortable giving “constructive criticism” by beginning with a positive note (recognition) and ending on a positive note, says Kuehler.
However, Steere says that by sandwiching the negative feedback between bits of positive feedback, the employee misses the full impact of what they actually need to improve on.
She says that it’s okay to let your employee know you appreciate their contribution during the beginning of the conversation, but to focus on the area that needs work and to end the conversation with actionable advice on fixing the issue.
“After describing the problem area, conclude the conversation by brainstorming next steps to resolve the problem,” she advises. “Leave the employee with those next steps – instead of trying to loop back around to a positive piece of feedback.”

#3 – Forced Ranking

Forced ranking, or ranking employees against each other, is the antithesis of team-building, and while a number of organizations still use it, Steere says it’s on the way out.
“Any time you pit employees against each other, you risk creating an environment that prizes prima donnas instead of team players,” she says, adding that if you hire correctly instead, all of your employees should be strong performers.
A Society of Human Resources Management (SHRM) article suggests that forced ranking is subject to abuse, and that it was behind a 2016 lawsuit brought against tech giant, Yahoo!. The suit argued that the performance management technique led to discrimination against Yahoo!’s male workers.
While it has had some well-known and well-respected fans, among them Jack Welch, the 1980s-era CEO of General Electric, Steere says force-ranking that places a strong performer into the bottom bracket means you risk losing top talent.
“In this era of hiring shortages – at least in certain fields – you shoot your company in the foot when you use a forced ranking approach,” say Steere.
Related: 5 Ways Small Businesses Can Compete for Top Talent

What’s In – the Latest Performance Management Trends

Now that you know what’s out in the world of performance management, here’s what’s in.

#1 – More Frequent, Positive Feedback

As annual reviews fall out of favor as a performance management strategy, they’re being replaced with more agile performance review strategies that allow for frequent communication about performance between supervisors and employees.
“Employee engagement research and practice has helped supervisors understand the power in providing positive feedback and providing it more frequently,” says Kuehler.
And this approach works. In fact, 90 percent of companies in Deloitte’s study report employee engagement improvement, while 83 percent report improvements  in the “quality of conversations between employees and managers.”

#2 – Less Managing, More Coaching

The Deloitte report also found that an increasing number of companies are placing more emphasis on coaching and development vs. management and supervision.
And according to Kuehler, managers are now expected to spend more time and attention on developing their direct reports rather than pointing out areas or skills that need work. From there, direct reports are left to their own devices to figure out how to correct these deficiencies.
“In essence, the shift in thinking is less managing and more leading, where supervisors employ coaching as a way to motivate performance, rather than punish to motivate,” he says. “Employees feel valued and contribute more when they feel invested in, and when they receive individualized attention relating to their own growth, employees reciprocate with passion and engagement.”
Related: How to Improve Employee Efficiency With Goal Setting

#3 – Peer Evaluations

Crowdsourcing isn’t just good for raising startup capital, it’s also a performance management trend emerging as peer evaluations, where companies depend on feedback from an employee’s peers.
“Several technology platforms focus heavily on coworker input, and not just the supervisor’s perspective,” says Kuehler.
At Facebook, for example, performance appraisals start with peer reviews. These are then incorporated into face-to-face meetings between managers and direct reports, says a recent Harvard Business Review story.
Adding peer reviews to your performance management culture encourages transparency and open communication, which many companies strive to improve. Additionally, the point of view of an employee’s peers may be different from that of their supervisor. “Coworkers see that employee in varied scenarios, while the supervisor’s presence may influence how the employee shows up,” Kuehler says.

Implementing Smarter Performance Management

When a company maintains an outdated performance management culture, it puts the business at risk. Unhappy employees may leave for competitors, resulting in high turnover, and additional time and money spent to hire new staff.
If your business is still operating with outdated performance management techniques, it’s time for an update. Consider introducing a new approach – like one of the three mentioned above, and monitor the results of your changes.
Want to incorporate a strong performance management system into your business? See how the Zenefits platform can help. 
 
This article was originally published on 6/15/2017 and has since been updated.